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The TCC delivers its Judgment 112-Hsien-Pan-10 (2023)


     TAIPEI, August 2, 2023. The Taiwan Constitutional Court (TCC) announced its Judgment of the “Case on Paying up Taxes due to Miscalculation in Imputation Credit Account for Companies with 100 Percent Non-Resident Shareholders” on July 21, 2023.


Principal Facts, Issues, and Procedure of the Case

     From January 1, 1990, to December 31, 2017, Taiwan implemented the “Integrated Income Tax System”. This system could avoid double taxation for shareholders of profit-seeking companies: after the companies paid their profit-seeking company income tax, they may distribute an imputation credit along with earnings to the shareholders, so that the shareholders may deduct the credit from their individual income tax. To ensure the functioning of the system, Article 114-2, Paragraph 1, Subparagraph 1 of the Income Tax Act (2009) stipulated that: “Under any of the following circumstances, the act violating profit-seeking enterprise shall be ordered to pay up the income tax which shall otherwise be offset in respect of the amount of over-distributed surplus earnings, (…): 1.The profit-seeking enterprise has violated the provisions of Paragraph 2, Article 66-2, Article 66-3, or Article 66-4 of this Act in force of its commission by falsely increasing the amount in the shareholder tax offsetting account, (…), to the extent that the amount of (deductible) imputation credit actually allocated to shareholders or members has exceeded the amount of deductible tax which may be allocated to shareholders.” This provision (hereinafter “the disputed provision”) allows the government to order companies to pay up their income tax if the amounts in the imputation credit accounts (shareholder tax offsetting account) are false. 

     The petitioner of this case, TWI Industrial Taiwan, Inc., which is a profit-seeking company owned 100 percent by non-resident shareholders, miscalculated the imputation credit in its 2012 Statement of Changes in the Imputation Credit Account (ICA) filing, which led to an over-distribution of (deductible) imputation credits to their shareholders. Consequently, the National Taxation Bureau of Central Areas ordered the petitioner to pay up its taxes under the disputed provision. The petitioner filed an administrative appeal, which was followed by administrative litigation after it was denied. The Supreme Administrative Court dismissed the case on second appeal in 2017. The petitioner later lodged for a constitutional review in 2018, arguing that: (1)as its shareholders were all non-residents, whose income tax in dividends were withheld at source, factually the imputation credit derived from the petitioner’s ICA was not used in deduction in practice; (2) the disputed provision, without distinguishing the constitution of the companies’ shareholders, led to double taxation; (3) consequently, the disputed provision violated the principle of equality, the principle of taxation by law, the principle of proportionality, etc. 

    Judgment 112-Hsien-Pan-10 was announced by the Court at 3 p.m. on July 21, 2023. Justice Chong-Wen CHANG wrote this Judgment. Justice Horng-Shya HUANG filed an opinion dissenting in part and concurring in part. Justice Hui-Chin YANG filed an opinion dissenting in part.


Decision of the Court

    The TCC declared the disputed provision partly unconstitutional, ruling that parts of the provision violates the principle of equality, and shall cease to be effective immediately after the announcement of this Judgment. In its reasoning, the TCC pointed out that when it comes to profit-seeking companies with shares 100 percent owned by non-resident shareholders, for the reason that non-resident shareholders’ dividends are taxed at source, it won’t constitute tax evasion or losses in tax revenue when the companies in question miscalculated their imputation credit, except for the situation where the companies have to pay taxes under the proviso of Article 73-2 of the Income Tax Act. The TCC held that, apart from the abovementioned exception, the disputed provision constitutes unreasonable differential treatment and violates the principle of equality as it asks all profit-seeking companies to pay evaded taxes supplementary equally without distinguishing those with 100 percent non-resident shareholders.



  1. Full texts of the Judgment and Opinions are available on the TCC website at https://cons.judicial.gov.tw/docdata.aspx?fid=38&id=325406 (Traditional Chinese). An English summary of this Judgment will be available later on the TCC English website.
  2. The TCC’s Case News is prepared by the Department of Clerks for the Constitutional Court (Judicial Yuan) for information only and does not bind the Court. 
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